Macroeconomic Goals, Employment and Prices
Exam scope and how to use this unit
Canvas Quiz #2 lists Introduction to Macroeconomics in its in-class coverage for 27 October 2026. This unit follows lecture 05. It builds the distinctions needed for the course's true/false style, then applies them to complete numerical cases. The practice questions are original analogous exercises, not a reproduction of the upcoming exam.
Three goals, three different questions
Economic growth concerns sustained increases in real output. Low unemployment concerns people who are available for work and cannot find it. Price stability concerns the overall price level changing slowly and predictably. A nation can improve one measure while another deteriorates, so one statistic is not a complete diagnosis.
Price stability does not mean every product has the same price, every individual price stays fixed, or all prices must fall. Lower inflation can mean prices are still rising, just more slowly. Growth in money expenditure does not by itself establish growth in the quantity of goods and services: prices can account for part of the increase.
The lecture's charts compare GDP per person with life satisfaction, human development, literacy and life expectancy. Their broad positive relationships help explain why output matters. A relationship across countries does not establish that GDP alone causes every difference, that all residents benefit equally, or that a country with higher GDP always has the better outcome.
GDP growth: choose the denominator carefully
Growth rate (%) = (current GDP − previous GDP) / previous GDP × 100. Compare consistent periods and measures. If the question asks for real growth, use real GDP for both periods.
Suppose real GDP rises from ₱2,400 billion to ₱2,532 billion. The change is ₱132 billion; growth is 132 / 2,400 × 100 = 5.5%. Dividing by the current ₱2,532 billion would answer a different question. If GDP then returns to ₱2,400 billion, the fall is 132 / 2,532 × 100 = about 5.21%: an equal peso reversal does not imply an equal percentage reversal.
Labor-market classification comes before calculation
For the classroom calculations, partition the stated working-age population into employed, unemployed and outside the labor force. Labor force = employed + unemployed. A student who is neither working nor seeking or available for work is outside it; being old enough to work does not automatically make someone a participant.
Unemployment rate (%) = unemployed / labor force × 100.
Labor-force participation rate (%) = labor force / stated working-age population × 100.
The denominators answer different questions. Unemployment asks what share of participants lack work. Participation asks what share of the relevant population participates. A jobless person is not necessarily unemployed in the statistical sense. A worker with a job who is temporarily absent can still be employed.
Worked population case
A hypothetical population contains 12,000 people in the stated survey-age group: 7,200 employed, 800 without work who are available and actively searching, and 4,000 outside the labor force.
- Labor force = 7,200 + 800 = 8,000 people.
- Unemployment rate = 800 / 8,000 × 100 = 10%.
- Participation rate = 8,000 / 12,000 × 100 = 66.67%.
- If 200 unemployed people stop participating, employed remains 7,200, unemployed becomes 600 and labor force becomes 7,800. The unemployment rate falls to 7.69%, although nobody obtained a job. Participation falls to 65%.
This last comparison is why a lower unemployment rate alone does not prove better job creation.
Source clarification: Philippine survey ages
Lecture 05 uses a simplified 15–64 age bracket. The Philippine Statistics Authority's actual labor-force definitions use 15 years old and over, and also recognize specified exceptions to active job search. Use the age population explicitly supplied in a numerical problem. Do not memorize an upper age cutoff as the PSA definition. See PSA labor-force definitions.
Four unemployment mechanisms
| Type | Main cause | Diagnostic example |
|---|---|---|
| Frictional | Time needed to match a worker to a job | A graduate searches between school and a first job |
| Structural | Skills, location or industry no longer match available work | A role disappears and available jobs require different skills |
| Cyclical | Weak aggregate demand during a downturn | A firm lays off staff because economy-wide sales fall |
| Seasonal | Work predictably exists only during part of the year | A holiday retail contract ends after the selling season |
In the lecture's simplified model, the natural rate combines frictional and structural unemployment. Full employment therefore does not require zero unemployment. The cause matters more than the worker's age or the fact that a dismissal occurred: a technology-related mismatch is structural, whereas a demand-driven layoff is cyclical.
CPI and inflation: index levels are not percentage changes
To construct a fixed-basket CPI, hold quantities fixed and price that same basket in both periods:
CPI = current cost of fixed basket / base-period cost of fixed basket × 100.
Suppose the basket contains six meals and two notebooks. Base prices are ₱50 and ₱80; current prices are ₱55 and ₱90. Base cost = 6(50) + 2(80) = ₱460. Current cost = 6(55) + 2(90) = ₱510. CPI = 510 / 460 × 100 = 110.87. The basket costs about 10.87% more than in the base period.
Inflation rate (%) = (current CPI − previous CPI) / previous CPI × 100. If CPI increases from 125 to 130, inflation is 5 / 125 × 100 = 4%, not 5%. Five is the change in index points. A CPI of 130 does not mean the current year's inflation is 30%; that is the cumulative change from the base, whose index is 100.
Positive inflation at a lower rate is disinflation. A fall in the overall price level is deflation. For example, CPI 120 → 126 → 129.78 gives inflation of 5% and then 3%: prices continue to rise in both periods.
The course uses the familiar fixed-basket framework. Its urban-consumer wording should not be read as the scope of the Philippine all-income-households index, which the PSA describes as a basket purchased by all-income households. CPI measures average price movement; it does not force shops to charge uniform prices. See PSA CPI definition.
Business cycles and the Phillips-curve sketch
An expansion raises activity toward a peak; a contraction takes it toward a trough. A trough is a turning point, not the whole contraction. The lecture's stylized short-run Phillips curve depicts an inverse association between inflation and unemployment. Read a movement using its axes: lower unemployment is paired with higher inflation in that sketch. It is a model relationship under its assumptions, not a promise that every economy always experiences that tradeoff.
Final reasoning checks
- Ask whether a claim concerns a level, an absolute change, a percentage change, or percentage points.
- Classify the person before choosing a labor-market denominator.
- Compare real measures to discuss output growth; compare CPI levels to calculate inflation.
- Explain the mechanism behind an unemployment type or a cycle phase.
- Treat words such as “all,” “only,” “always” and “directly” as claims that need justification.
Source map
05. Introduction to Macroeconomics.pdf, pp. 4–20: goals, GDP growth, development charts, labor categories, CPI, inflation, Phillips curve and business cycle.07. Money, The Central Bank, and Monetary Policies.pdf, pp. 13–14: course true/false emphasis on classification and wording.- Canvas FDNECON Quiz #2 assignment: explicit scope and date. Original files remain in private local storage; this reviewer contains paraphrased teaching and constructed examples.